Mortgage approvals dip as rates increase

By Sam Covington | Thursday 21st April 2022 | 2 minute read

Mortgage approvals for house purchases fell to 71,000 in February 2022, from 73,800 the previous month, according to the latest Money and Credit statistics from the Bank of England. Whilst not a surprising result of rising inflation rates, it has impacted borrowers who are in turn having to look elsewhere for their mortgages or re-mortgages.

Mortgage approvals dip as rates increase

Borrowers are currently feeling the pressure of being hit by a financial double whammy. Firstly, the rising costs of living with the increase in everyday items, fuel, energy prices, the increase to National Insurance contributions, and secondly by mortgage rate rises that are likely to continue going up in the near term.

These factors are leading to a growing number of those who can’t receive a mortgage and in turn could pose a real problem for those planning to refinance a bridging loan by way of a traditional mortgage.

Decreased mortgage lending to individuals 

The Bank of England's Money and Credit report for February 2022 provides insight into the state of the economy. It states that while it was not all doom and gloom, and economic activity indicators showed promise, inflationary pressure was clearly visible in the mortgage lending data.

Whilst the 71,000 approvals in February are above the pre-pandemic average of 66,700, the recent approval drop demonstrates that borrowers are feeling the heat of the rising cost of living.

The report also noted a significant drop in net borrowing of mortgage debt by individuals decreased from £5.9 billion in January to £4.7 billion in February, though it was more than the pre-pandemic average of £4.3 billion. 

Experts share their opinions

Economists and experts have delivered their views on February's report. Nitesh Patel, Strategic Economist at Yorkshire Building Society, felt that the current environment could slow house price growth.

He said: "February's Money and Credit data from the Bank of England suggests that, on one hand, economic activity continues to hold up better than expected, and on the other, there are signs that for some households the cost of living crisis might be beginning to bite.

"With real earnings expected to fall this year and if borrowing costs rise then this should dampen consumer spending and slow housing market activity, and particularly house price growth, which would be welcomed by potential first-time buyers."

Steve Seal, CEO of Bluestone Mortgages, felt the mortgage lending market could see more demanding days because of the rising cost of everyday items. 

Seal said: "Although today's dip in mortgage lending is hardly surprising given the current inflationary pressures, affordability will continue to be an issue. Our own research found that rising costs of everyday items are the main concern for 'non-vanilla' customers. Combined with rising energy prices, and the hike to National Insurance contributions, we're likely to see a growing cohort of customers locked out of the mainstream mortgage market."

Bridge loan

What can you do if your mortgage, or remortgage, application is denied?

An increase in mortgage rates will affect the cost of borrowing for homebuyers, and adversely impact the demand among property buyers. Additionally the low approval rates and increasing rates of interest on mortgage loans will impact homeowners who were expecting to pay off their existing residential bridging loans with a mortgage. 

Stephen Clark from Finbri, a specialist in bridging loans says, “We believe that over the next quarter we are likely to see a rise in bridging finance extensions or bridging products being used as a refinancing tool for those who are unable to move onto mortgages.

“The ‘non-vanilla’ customers, those looking for mortgages who are self-employed, have previously had a credit issue or no credit history at all, have been especially impacted by the rise in mortgage rejections and are now looking to different financial products to source the funds they require.”

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